From Downsizing To Outsourcing

To buy or to build - that is the question. And it is one that managers at U.S. companies are asking with increasing frequency these days.

The outsourcing industry is no longer confined to handling company payrolls. It now offers expert assistance with everything from technological development and information-systems upgrades to medical-claims administration and customer service.

Recent research from Buck Consultants indicates that the trend won’t just continue - it will accelerate. The New York-based consulting firm’s survey, “Outsourcing: Human Resource & Employee Benefit Administration,” looked at a broad cross section of U.S. employers in industries including manufacturing, health care and retail as well as in law firms and academia.

The workplaces ranged in size from just five employees to 81,000, with the average company surveyed employing almost 5,000 people.

Almost half of the 231 employers participating in the survey (47 percent) said they used outside firms to handle their human-resource or employee-benefit functions.

More than half of those employers (56 percent) planned to outsource additional functions in the future. Fifteen percent of the companies not currently outsourcing planned to start doing so.

“With the regulatory and technology environments rapidly changing, employers are questioning whether they have the financial resources and staff to continue providing quality and cost-effective administration of their human-resource and employee-benefit functions,” says Leo Arvin, a principal and administrative consultant at Buck.

The most popular functions to be outsourced by the employers surveyed were medical-claims administration (91 percent), utilization review (91 percent), recordkeeping (90 percent), vision-care programs (87 percent) and investments as part of a company’s defined-contribution plan (82 percent).

Most of the companies believed that the outsource functions were being handled at least as efficiently as before, according to the report.

Surprisingly, outsourcing the payroll task ranked as one of the five least-outsourced employee functions, at just 18 percent.

The very word “outsourcing” tends to strike fear into the hearts of employees. Yet outsourcing’s record at causing jobs to disappear is mixed.

About half of the companies surveyed by Buck said there was no negative impact on the employees in their human-resource or employee-benefit departments after various departmental functions were outsourced.

Almost another quarter of the survey participants said it was “too soon to tell.”

However, the remaining 23 percent of employers surveyed did report significant reductions in workers.

The average human-resource department was reduced from 29 employees to 16. The average employee-benefit department was reduced from nine to six employees.

Some companies remain reluctant to outsource, however. The most commonly cited reasons for keeping functions in-house were “loss of control,” “philosophy” and “size of company.”

Although Buck concentrated on humanresource departments and employee-benefit functions, the increasing willingness to outsource company functions extends to every aspect of an employer’s responsibilities.

Whether it’s as simple as drug-testing or as complex as software development, chances are that for any task your company is doing in-house, there’s an independent firm out there somewhere willing to do the work for you.

Computer-related outsourcing businesses are among the greatest beneficiaries of this trend. A 1995 Arthur Andersen study found that 36 percent of companies surveyed outsourced their computer-information services.

Maintaining Internet and intranet services and handling company home pages on the World Wide Web are just two aspects of the computer-related outsourcing market, which will skyrocket from $19 billion last year to $42 billion in the year 2000, according to the research firm Input.

The virtual workplace is indeed a long way off. But the growth rates of the outsourcing industry suggest that for an entrepreneur with an eye for the unexploited market niche, there’s a lot of money to be made as American businesses travel in that direction.

xxxx